This management team has done an excellent job with a very tough hand. I do commend them for growing this business and signing key licensing and distribution agreements especially in the private label world and Rader Farms fruit business. However, this quarter poked some holes in my thesis for the very first time. And quite frankly, at $6+ a share a cloudy picture about growth cannot stand.
First, even when taking out the one time Costco $3 million revenue, how were Jamba sales only up 11%? Since this same quarter last year, they introduced Orange Dream Machine and most recently 2 Greek Yogurt Superfruit smoothies to the line. Further, they had increased distribution vs. same period last year. For sales to be up only 11% is an alarming change from the trend of the last 2 years since launch. I had counted on Jamba to become their largest brand eventually.It seems Dole has suddenly come in to compete on price. But if Jamba is already in 2/3 of grocery stores and increased SKUs aren't as accretive as thought this paints a new picture of Jamba at home smoothie growth. Also, Jamba Inc.(JMBA) reported lower licensing revenue (.3 million instead of .4 million) in its most recent quarterly earnings report. A lot of that was probably the one time $3 million Costco event. Though this still suggests other licensed items with the Jamba name aren't doing that well.
Second, in the last quarter or two, new products for the Boulder Canyon brand seem to have carried the sales growth. This means, kettle chip sales were flat to down at least. The change in size and packaging is probably for strategic reasons, but clearly some retailers haven't been satisfied with sales velocity. On the east coast I have seen Boulder appear in grocery stores at times, but it doesn't appear to have the brand awareness to stay on the shelves. While it is the best potato chip I have ever tasted, the consumer is very simple and will ultimately choose the well known marketed brand. Unfortunately, this means in SOME distribution channels the chips seem to be on the shelf expiring which is unfortunately what seemed to happen to the Burger King snack brand as well.
Third, TGIF sales being down is not the end of the world but considering the last few quarters had seen resurgent growth, it was quite disappointing to reclassify TGIF chips as a mature brand. The new permanent distribution at Walmart and maybe at Target seems promising, and I do expect TGIF chips to be stable. However, I am concerned in the c-store channel and drug store channel. For example, why did 7-11s and Walgreens I used to visit have TGIF chips, but no longer do? I can't imagine TGIF not renewing the licensing agreement, but it does expire in May of 2014. Jamba got rolled out to 2035, you would think TGIF would negotiate this deal out further considering how long it has been in place.
Finally, the Rader Farms fruit business growth is outstanding. However, I am unable to predict if that can continue longer term because it isn't clear what is truly driving it. A lot of the brand is concentrated in the Nature's Three Berry Blend at Costco. Since Rader Farms is their largest brand, I think this growth is great, but competing with Dole and other well established fruit purveyors may prove difficult. In contrast, Nathan's Famous crinkle cut fries and Jamba multigrain fruit crips will probably do well. Yet, it is unlikely they will become a huge business for SNAK such as TGIF. Given this uncertainty and a great run in the stock, I chose to sell my shares. Good luck to all.
Any thoughts as to what might be a decent re-entry point? Would you consider getting back in the stock were the price to fall to a certain level, or are you thinking more along the lines of simply putting your money to work elsewhere?
That's a tough question. Of course I am very disappointed at the surprise change in Jamba growth. For the right price ($4.00) I would definitely re-enter. But as a company grows in value, the expectations I have of that company go up linearly. At $4 I might overlook a weak quarter. But at $6, I am not willing to wait it out to see what happens. That's called guessing. I knew it was overbought in the $7s, but I did not want to pull the trigger because I had so much faith in Jamba at home smoothie. When I started buying in the $2s in 2010 I was focused on the Jamba at home smoothie launch. I thought it would become a $50 million brand very quickly. While it definitely is a success, it is not enough to propel this company to a much higher place as i previously predicted. I was the guy buying even more shares in early 2011 after the company announced they wouldn't grow earnings and it fell from mid $4s to low $3s. I thought this was the right decision by management. And I thought the market was stupid for taking such a short term view in chasing short term earnings numbers when slotting and above the line spending was going to help the top line immensely. I really did have faith in the company at those prices especially with consistently growing revenues. I just don't know where the next 5 years of revenue growth is going to come from if Jamba isn't a mega hit ($50- $100 million brand). The Rader Farms revenue surge continuing or not continuing does not seem like something I can forecast very well. This company earned $.07 per share in Q2 of 2010. It's 2 years later and they were only able to earn $.08. If they returned to historical margins $.10 should have been the earnings number. But that's not even why I sold. It's the prospect of weak revenue growth that scares me. Jamba growing at 10 or 20% is just not fast enough. I also don't know where the growth will be on the snack side. The frozen division needs to be a superstar if the snack business stagnates. As sad as I am, I have to find new investment opportunities. This represented a lot of my portfolio. But I am thankful for having done well on this investment.